How to use credit cards without going into debt
Stay debt-free with these expert tips.
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When you buy something with a credit card, it can feel like you aren’t spending money at all. That’s because, technically, you’re not taking anything out of your bank account—at least, not right away. One of the selling points of credit cards is the ability to make a purchase and then pay off the balance due in smaller payments over time. But using high-interest credit cards without thinking about how you will pay the charges can rapidly turn into a lot of debt. Not only is this bad for your credit score, having that amount hanging over you can take a toll on your self esteem and increase your anxiety.
Here are some expert-approved tips for using a credit card—without getting into unmanageable debt.
Know why you want a credit card in the first place
Credit cards aren’t inherently evil. They’re financial tools that millions of people use to make their daily lives more convenient. Some cards come with cash-back rewards or ways to collect points that can be redeemed for travel, which can help people save on purchases in the long run. Depending on the card, they may come with certain purchase protections (like, for instance, travel insurance) that aren’t available when you spend cash.
But cards also allow you to spend more money than you have available at the moment, which can be a dangerous path to overwhelming debt for certain people. So, before you sign up for a card, be honest with yourself about why you want one. If you’re looking for a more convenient way to spend the money you have, the right credit card could be a good choice for you. If you’re looking for a credit card so you can spend beyond your means, you may want to rethink whether or not you truly need it.
Make a budget—and stick to it
The best way to avoid debt is also a simple one: Make a budget for your life that fits within your income, and make sure you don’t exceed it.
The key to maintaining your budget, according to Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, is to actively keep track of your spending. Looking at a list of your transactions and seeing the amount of money it will add to your balance can make each swipe of your credit card more tangible. If you know you may have trouble sticking to a budget, get a card with a lower credit limit. This puts a literal enforcement on a certain amount of money that should fall within your means.
Being aware of your budget and spending limits can also be useful if you find yourself getting carried away by the promise of credit card points and rewards—which can be helpful, sure, but not if you’re spending beyond your means to get them and putting yourself in debt.
“If you’re going after rewards, you have to have a budget on that card or you might overspend,” Harzog says. “Some people overspend trying to get all the rewards they can, but if you have a budget in place and you stick to it, that will keep you from overspending and getting into trouble.”
Use autopay—if you’re sure there’s enough in your account
Setting up the autopay function—a service that automatically pays your credit card bill each month—on your card is a simple way to ensure your balance is paid in full with very little effort. But autopay is only a solution if you are certain you have enough money in your bank account to cover your payment in full—if not, it may cause an overdraft on your bank account. In those cases, Harzog suggests setting up a calendar or email reminder a few days before the bill is due, so you can take stock of your finances and, ideally, pay it in full. If you consistently have credit card bills higher than what’s in your account, it may be a sign to re-evaluate your spending. “If things are so tight that you are constantly having to juggle things, you could be living above your means, so be careful of that as a warning sign,” Harzog says.
Of course, everything you’re charging to your card could be necessary. But if there’s anything to trim from your expenses, do it before you get into debt, not after.
Keep an emergency fund
Credit cards are often thought of (and advertised) as a means for buying fun things: restaurant meals, plane tickets, clothes. But a lot of the time, they’re used for not-so-fun—but vital—things, like medical, home, and vehicle emergencies. These costs can be devastating for anyone, especially medical bills, which, depending on the situation, can leave people hundreds of thousands of dollars in debt. If possible, keep an emergency fund budgeted into your expenses so you have some money to spare if your car breaks down or you have to go to the emergency room.
If you find yourself with a shockingly high medical bill, talk with your medical and insurance providers before you try to pay. You may be able to negotiate a lower overall cost, especially if you can pay for the lower amount quickly and in full. “This works if you’ve got the cash reserves and you say you can pay for a certain amount right away,” says Harzog.
Of course, not everyone has that kind of money—even if the rate is lowered—especially if it’s an expensive emergency. “If you’re in a situation where you are so far underwater—say, your hospital bill is more than you make in a year, which is not an unusual situation—I suggest talking with a credit counselor,” Harzog says. She suggests the National Foundation for Credit Counseling, a nonprofit financial counseling service that offers a free one-hour session to anyone regarding debt management plans and more.
“This can be helpful just to get some kind of direction, because you don’t have to go through that by yourself,” Harzog says. “That doesn’t mean you have to do bankruptcy or a debt management plan, but they will work with you and sometimes negotiate on your behalf. So take that step, and do it before it’s too late.”
Never, ever carry a balance
Carrying a small amount of credit card debt might not seem like a big deal. But it’s definitely not something you want to get used to, especially if you’re putting off your payments until you get a raise or a bonus. “Then, something else might happen, like you need a car repaired,” Harzog says. “After a couple of months of big expenses and just paying off the minimum, you’ll have a big balance on your account, and it’ll be really easy to lose track of the compound interest on your card.”
This is another instance in which budgeting and tracking your spending is vital. Make it a habit to check up on your credit card and bank account a few times a month—not only is this helpful for security purposes, it can help your credit card use feel more concrete. “Just seeing your transactions online can make it feel real, because sometimes it doesn’t feel real when you’re using a credit card,” Harzog says. “It feels like no money has exchanged hands.”
Know when to stop using your card
If you find debt building up, and you’re able to manage your household and living expenses with the money you have in your account, give your credit card a break. “Stop using your credit cards and be sure you pay that bill down to zero before you start using it again, just to be sure that you’re financially aware and you’ve got the cash flow for everything,” Harzog says.
In addition to breaking even with your debt, you may want to come to terms with why you are in debt. “If you consistently do that—you just can’t help yourself, you’re an impulsive spender—that’s another problem,” Harzog says. “That’s when you could have an emotional problem with money and you’re unable to control your spending.” In that case, stop using your card, and consider seeing a therapist—possibly one who focuses on financial issues—before you use one again. “Sometimes [debt] could just be that you don’t understand how the cards work,” Harzog says. “But sometimes it’s more than that.”
Once you feel like you’ve gotten a handle on your finances, look into getting a credit card with a low monthly limit. You may want to get a secured card, which requires a deposit and is often used by people who want to build credit. “You have to put down a balance, but you’ll have a very low credit limit and if you’re worried about overspending, it’s like a credit card with training wheels,” Harzog says. “It gives you a chance to get used to the rhythm of paying the bill on time.”
In most cases, you’ll want to look for a card that’s affiliated with a major bank or credit union. If you pay your bills in full and on time—usually about six months to a year, depending on the card provider’s policy—you may “graduate” to a non-secured card. With responsible use, you can continue to build your credit, keep your finances in order, and stay debt-free.